To facilitate focus on positive risks and positive risk taking we need to understand the two fundamental types of risks.
- Negative risk means 'pure risk' which is a situation where the possibility of loss / no loss exists, but no possibility of gain exists.
- Positive risk, opportunity and positive risk taking mean 'speculative risk' which is a situation where the possibility of either a financial loss or a financial gain exists.
A person does not purposefully take-on pure risk because they know there is only a possibility of either loss or no loss and no possibility of gain.
A person purposefully takes-on positive risks and exploits opportunities because they know that there is the possibility of either a loss or a gain. E.g. investing in equity, property, or other ventures in the hope of gain but with the possibility of loss.
Hence risk management is the process of defining the context, identifying, analysing, evaluating, treating, monitoring and reporting pure risk and speculative risk through the systematic application of management policies, procedures and practices.